In today’s briefing:
- Sea Ltd (SE US) – Glass Half Full Again?
- StubWorld: CK Infra Vs. Power Assets
- Disco (6146 JP): Rolling Over
- Kanzhun (2076 HK): A Monitor of Job Market in China
- Ryobi (5851) | Re-Rating as Die-Casting Becomes Gigacasting
- Japan Consumer Staples Update: Inflation Looks a Blessing in Disguise for Those with Pricing Power
- Gree (000651 CH): Resilient Fundamentals; Rerating Potential In A Low Interest Rate Environment
- Adidas: All The Ingredients To Win
- Celltrion (068270 KP): Improving Base Business Is Being Overlooked by Mr. Market Amid Merger Noises
- COSCO Shipping Energy (1138 HK): Clearly Over-Optimistic
Sea Ltd (SE US) – Glass Half Full Again?
- The news that the Indonesian Government will target social commerce in Indonesia, as well as placing additional scrutiny on imported products sold through digital channels will impact TikTok hard.
- TikTok Shop will not be allowed to operate in Indonesia in its present guise given the requirement to split social media and e-commerce, which will benefit peers Shopee and Tokopedia.
- Sea Ltd through Shopee will be the biggest beneficiary given it will require less promotional spending in Indonesia and it has also re-entered the Indian market with FreeFire.
StubWorld: CK Infra Vs. Power Assets
- Because of significant business overlap, CK Infrastructure Holdings (1038 HK) looks very similar to Power Assets Holdings (6 HK). And CKI is coming up cheap on my monitor versus PAH.
- Preceding my comments on CKI/PAH are the current setup/unwind tables for Asia-Pacific Holdcos.
- These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.
Disco (6146 JP): Rolling Over
- After more than doubling between early April and the end of August, Disco has dropped back. The outlook for demand and valuations suggest potential downside of 20%.
- Operating profit was down 21% YoY in the June quarter on a 10% decline in sales. Management is guiding for 18% and 32% declines this quarter.
- Over-Optimistic expectations regarding the pace and degree of cyclical recovery are being squeezed out of the share price.
Kanzhun (2076 HK): A Monitor of Job Market in China
- Kanzhun or Boss Zhipin, is the largest online recruiting platform for white collar workers.
- Users exceeded servers’ capacity for the third time this year.
- The positive signal is that recruiters began to grow in 2Q23.
Ryobi (5851) | Re-Rating as Die-Casting Becomes Gigacasting
- Ryobi is a global manufacturer of high-quality aluminum die castings used for transmission cases, engine parts, and other vehicle parts
- Ryobi has recently gained market attention following an announcement that the company will produce large electric-vehicle body parts using “gigacasting”
- The stock is expected to benefit from EV adoption with improved earnings and increased market recognition
Japan Consumer Staples Update: Inflation Looks a Blessing in Disguise for Those with Pricing Power
- Japanese inflation, which peaked at 4.3% in January 2023, gradually decreased to 3.5%, 3.2%, 3.3%, 3.3%, and 3.2% in the subsequent months of 2023.
- Inflation rates remained stable for most items, excluding Fuel, Electricity, Water, and fresh vegetables, indicating the persistence of cost-push inflation.
- In this insight, we analyze the recent quarterly performance of Yakult, Nissin, and Seven & I, Japanese Consumer Staples companies discussed in our prior Smartkarma Original.
Gree (000651 CH): Resilient Fundamentals; Rerating Potential In A Low Interest Rate Environment
- Gree Electric Appliances (000651 CH) trades at the lowest valuation multiple among the three major home appliance companies in China, at 7x forward PE and 7% forward yield.
- Investment case rests on stable earnings growth and high dividend payout and yield, which works well in a low interest rate environment in China.
- Resiliency of earnings for Gree is under-appreciated by the market, making rerating possible.
Adidas: All The Ingredients To Win
- Adidas has all the ingredients to win: “a great brand, credibility, authenticity, innovation, collaborations, talented people, and a global network”.
- Adidas operates in a highly attractive industry as it benefits from a structural growth from sports, which is playing an increasingly important role in more and more people’s lives
- Although 2023 is a transition year, the following years are very promising in terms of sales, margins, and earnings development.
Celltrion (068270 KP): Improving Base Business Is Being Overlooked by Mr. Market Amid Merger Noises
- As Celltrion (068270 KP) approaches merger clarity, focus will shift to its base business, which remains solid. In Q2 2023, biosimilar, the flagship business, reported a 10% YoY growth.
- Operating profit margin expanded 440bps YoY to 34.9%. Margins are expected to improve further through increasing contribution from high-margin products such as Yuflyma (Humira biosimilar) and Remsima SC.
- Celltrion expects to receive approval for Remsima SC in the U.S. by end of October, which should act as a major catalyst. By 2030, merged entity targets revenue of KRW12T.
COSCO Shipping Energy (1138 HK): Clearly Over-Optimistic
- Cosco Shipping Energy Transportation (1138 HK) has rallied sharply on strong earnings recovery, but this is too excessive. We think unrealistic expectation has been built on 2H23 earnings.
- Over the last three months, the spot VLCC rate has collapsed by 90%, indicating a weakened demand outlook. The resilient share price has clearly not yet factored in this movement.
- The recent surge in crude oil is driven by supply, not demand, factors. This has led to a 14% increase in bunker price which will heighten CSET’s fuel bill.
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